New Jersey homeowners facing financial difficulties could find themselves suffering even greater losses as a result of a tax break that expired. Since 2008, people who had their mortgage debt forgiven through a foreclosure or short sale could claim an exemption from being taxed on the forgiven debt. They could exclude up to $2 million in forgiven mortgage debt from their taxable income. However, this exemption, like other temporary tax breaks, expired at the end of 2017 and has not been extended. Therefore, a homeowner who was unable to pay the mortgage until ending the situation with a foreclosure or short sale may be taxed on the amount of the forgiven debt.
Of course, most people who claimed this tax break were already going through severe financial hardship. Some experts note that personal bankruptcy could be an option to avoid the additional debt, so long as homeowners file for Chapter 7 before their taxes are assessed for the year. Once a tax debt is already in place, it is more challenging to discharge it through the bankruptcy process. Bankruptcy does not address just one insurmountable debt; people would also seek debt relief from their medical bills, credit card debts and car loans through this process.
Advocates argued that failing to extend the tax break would make it likely that more people would declare bankruptcy. The tax break has been seen as less urgent than some others, especially as the housing market has recovered dramatically since 2008. Homeowners continue to face severe difficulties, especially if dealing with changed circumstances like a job loss or disability.
When people are unable to pay their bills, they may find themselves buried under creditor calls and lawsuits. A lawyer may provide advice on how personal bankruptcy may help people to find debt relief.